Pound buoyed by BoE rate hike bets

Philip McHugh November 23rd 2022 - 2 minute read

The pound ticked higher on Tuesday as it was supported by Bank of England (BoE) interest rate hike bets.

Sterling is struggling this morning however, with GBP/EUR slipping to €1.1504 and GBP/USD muted at $1.1880. GBP/CAD and GBP/AUD are subdued at CA$1.5897 and AU$1.7857, respectively, while GBP/NZD tumbles to NZ$1.9218.

Coming up, will weak PMI readings from the UK and Eurozone inject some volatility into the pound and euro today?

What’s been happening?

The pound firmed yesterday, the currency being underpinned by an improving market mood in addition to bets that the Bank of England will continue to raise interest rates.

However these gains were capped by forecasts from the Organisation for Economic Cooperation and Development (OECD) that the UK will see the largest downturn of any member of the G7 next year.

Trade in the euro was mixed on Tuesday, amid some conflicting messaging from the European Central Bank (ECB).

While the ECB’s Robert Holzmann said he would back another 75bps interest rate hike in December, other policymakers were less-than-hawkish, leading the euro to trade without strong direction yesterday.

The US dollar trended lower against the majority of its peers during yesterday’s European session. The currency falling in tandem with US Treasury yields, with additional pressure stemming from a cautiously optimistic market mood.

What’s coming up?

Turning to today’s session, the focus this morning will be on the Eurozone and UK’s latest PMI releases.

Up first will be the Eurozone release. November’s preliminary figures are expected to report the pace of contraction in the bloc’s manufacturing and services sector both accelerated, with the euro likely weakening in response.

The UK’s PMIs are expected to paint a similar picture, with private sector growth forecast to have slowed again this month. The pound may be disproportionately impacted by their release as they are likely to feed into concerns over the depth of the UK’s current recession.

In the afternoon the release of the latest US durable goods orders figures could offer some support to the US dollar if order growth ticks up in October as forecast.

However, the primary focus for USD investors will be the publication of the minutes from the Federal Reserve’s latest policy meeting. If the minutes indicate there is still appetite for a 75bps rate hike in December, USD exchange rates could surge.

Written by
Philip McHugh

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